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Why Amazon, Berkshire and JPMorgan Are Teaming Up on Health Care

Kevin Lamarque

By Michael Rainey

January 30, 2018

MOST POPULAR

Amazon, Berkshire Hathaway and JPMorgan Chase announced plans Tuesday to create an independent, non-profit company to provide health care services for their employees. Although details are scarce, the companies said their initial focus will be on “technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost.”

The companies, which employ about 1.1 million people between them, emphasized that they are still in the early stages of what promises to be a long-term project. “Success is going to require talented experts, a beginner’s mind, and a long-term orientation,” said Amazon CEO Jeff Bezos.

But the need for a fresh approach is clear enough. “The ballooning costs of healthcare act as a hungry tapeworm on the American economy,” Berkshire Hathaway Chairman Warren Buffett said in a statement announcing the venture. “Our group does not come to this problem with answers. But we also do not accept it as inevitable.”

The new initiative reportedly grew out of discussions that Bezos, Buffett and JPMorgan CEO Jamie Dimon had about the current employer-provided health care system. “They decided their combined access to data about how consumers make choices, along with an understanding of the intricacies of health insurance, would inevitably lead to some kind of new efficiency — whatever it might turn out to be,” The New York Times reported.

The possibility of an “Amazon effect” of better technology and lower prices sweeping through the employer-sponsored health insurance market, which covers about 160 million Americans, generated plenty of buzz and speculation. Pundits wondered if the corporate giants could end up creating a new model for the American health care system. Wall Street wondered the same, and shares in many publicly traded health care companies tumbled Tuesday morning in the wake of the announcement.

Most health care analysts were more skeptical. Sarah James of Piper Jaffray wrote, "Many have tried, but few have succeeded. We do not expect this [joint venture] to be a meaningful disruptor to the industry, despite the stock reaction indicating that it is." On the other hand, Anthony Chukumba of Loop Capital Markets reminded his clients that the health care industry has relatively high profit margins and that one of Jeff Bezos’s favorite sayings is, "Your margin is my opportunity."